VZCZCXRO1825
RR RUEHDBU RUEHLN RUEHVK RUEHYG
DE RUEHKB #0477/01 1101150
ZNR UUUUU ZZH
R 201150Z APR 07
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC 2848
INFO RUCNCIS/CIS COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 2092
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEHBS/USEU BRUSSELS

UNCLAS SECTION 01 OF 02 BAKU 000477 
 
SIPDIS 
 
SENSITIVE, SIPDIS 
 
E.O. 12598: N/A 
TAGS: ECON EFIN EAID ETRD ENRG EPET AJ
SUBJECT: AZERBAIJAN CREATES NEW SPECIAL ECONOMIC ZONES 
 
 
SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION - PLEASE 
HANDLE ACCORDINGLY 
 
¶1. (SBU) Summary: Azerbaijani President Aliyev signed a decree March 
6 creating Special Economic Zones (SEZ).  The decree aims to create 
favorable conditions for Azerbaijan's economic development, 
streamline more investments in high-priority sectors, create new 
jobs, apply modern management practices and competition techniques, 
and promote local goods and services. According to Minister of 
Economic Development (MED) Babayev, the first SEZ will focus on the 
development of a regional energy services hub.  The MED plans to 
present draft legislation to the Cabinet of Ministers within 30 
days.  The creation of SEZ's, long urged by the IFIs and 
multinational energy companies, is a key step in the diversification 
and strengthening of Azerbaijan's economy.  Full text of the 
Presidential decree is in para 8. END SUMMARY. 
 
¶2. (U)  In a March 6 Presidential Decree, Azerbaijan took the first 
step toward creating new Special Economic Zones (SEZ).  With an eye 
toward boosting foreign and domestic investment in the local 
economy, the GOAJ plans to create a privileged tax and customs 
regime and special currency regulations in the Special Economic 
Zones. There are also certain special soft conditions that will be 
applied on customs control procedures, operations of customs 
check-points, documentation of goods, and simplification of vehicles 
and individuals' admission at the Special Economic Zones. 
 
¶3.  (SBU) In a March 10 meeting, Minister of Economic Development 
(MED) Heydar Babayev told the Ambassador that the GOAJ planned to 
begin with just one Special Economic Zone, in a location still to be 
determined, focused on energy services.  Babayev said he believes 
that Azerbaijan has the experience and capacity to serve as a 
regional hub for energy support services, with a goal of exporting 
services to Turkmenistan and Kazakhstan.  Babayev added that his 
Ministry was in the process of drafting legislation to implement the 
new Presidential decree and expected to have draft legislation ready 
within 30 days. 
 
¶4.  (SBU) Deputy Minister of Economic Development Mikhail Jabbarov, 
who is leading MED's efforts on the Special Economic Zones, later 
told emboffs that the EBRD had provided assistance in the 
development of Azerbaijan's SEZ concept.  According to AzPromo (the 
Azerbaijan Export-Import Foundation, part of MED), the GOAJ also has 
discussed the SEZ concept and international best practices with 
other IFIs, and also with the AmCham, British Business Group, TUSIAB 
(Turkish Businessmen Union), and DAWF (German-Azerbaijan Economic 
Assistance Union), a welcome sign of deeper GOAJ engagement with the 
private sector.  Jabbarov told us he would welcome input and 
possibly technical assistance from USAID as MED further develops the 
SEZ concept. 
 
 
¶5. (SBU) Anar Guliyev, Director of the Investment Promotion Section 
at AzPROMO, separately told us that domestic investment is 
increasing and there is a strong need for stimulation of investments 
in non-oil sectors, including agriculture, tourism, transport and 
communications, heavy and light industries, petrochemical industry 
and other fields. According to Guliyev, the new Special Economic 
Zones could potentially help to attract foreign investment in the 
food processing industry, construction, IT, banking and other 
services sectors. Guliyev believes that the favorable conditions 
within the Special Economic Zones will develop and increase foreign 
direct investment in the non-oil sectors. 
 
¶6. (SBU) Alakbar Mammadov, Chairman of the Azerbaijan Entrepreneurs 
(Employers') Confederation, said that existing laws "On Protection 
of Foreign Investments" (adopted in 1992) and "On Investment 
Activity" (adopted in 1995) were not effective in bringing more 
investment to Azerbaijan. Mammadov indicated that it would be more 
helpful if the Special Economic Zones allowed tax reduction at the 
amount of the re-invested funds. He also noted that there appears to 
be a demand for creating special conditions for manufacturing 
industries, as well as for leasing services sector. 
 
¶7. (SBU) COMMENT: Creation of Special Economic Zones has been 
strongly recommended by the IMF, World Bank and other IFIs as a key 
step in the diversification and strengthening of Azerbaijan's 
economy.  It also has been urged by multinational energy services 
companies, who see SEZ's as a way not only to increase their 
business but also to keep Azerbaijan's well-trained energy services 
labor force employed as construction on the current Production 
Sharing Agreement projects winds down.  This is an important 
development that we will continue to monitor.    End Comment. 
¶8. (U) Begin text of SEZ Presidential Decree. 
 
DECREE OF THE PRESIDENT OF THE REPUBLIC OF AZERBAIJAN ON CREATION OF 
SPECIAL ECONOMIC ZONES IN THE REPUBLIC OF AZERBAIJAN 
 
BAKU 00000477  002 OF 002 
 
 
Nowadays, in a number of countries solution of socio-economic 
problems, wider and efficient use of scientific-technical 
achievements and more active participation of these countries in 
international labor division is achieved by application of new form 
of economic action such as economic zones. International experience 
shows special economic zones have huge impact on economic 
development of separate territories and countries in whole. 
 
Fruitful conditions have been provided by purposeful actions taken 
for last years in the Republic of Azerbaijan to the establishment of 
market economy, consistent socio-economic development of country and 
its integration to international economic relations system. The 
Republic of Azerbaijan is in the new phase of socio-economic 
development. Special economic zones can play important role in 
implementation of strategic programs and projects adopted in 
connection with this, solution of priority economic and social 
tasks. Creation of such zones can also stimulate further expansion 
of foreign economic ties using preferences of suitable geographic 
and transport position of Azerbaijan. 
 
To achieve solution of issues such as creation of suitable 
circumstance for development of economy and regions of country, 
propaganda of investments and directing it to priority spheres, 
opening of new workplaces, use of modern management experience, 
introduction of goods and services durable to competition, I decree: 
 
 
¶1. Creation of special economic zones in the Republic of Azerbaijan 
shall be counted purposeful. 
 
¶2. It shall be defined the state policy on creation and functioning 
of special economic zones in the country is carried out by Economic 
Development Ministry of the Republic of Azerbaijan. 
 
¶3. The Cabinet of the Republic of Azerbaijan shall be assigned 
within 1 month: 
 
3.1. to prepare and submit to the President of the Republic of 
Azerbaijan the draft Law of the Republic of Azerbaijan 'On special 
economic zones'; 
 
3.2. together with Economic Development Ministry of the Republic of 
Azerbaijan to prepare and submit to the President of the Republic of 
Azerbaijan its proposals on priority directions of creation of 
special economic zones; 
 
3.3. to prepare and submit to the President of the Republic of 
Azerbaijan drafts of regulations on respective special economic 
zones; 
 
3.4. to prepare and submit to the President of the Republic of 
Azerbaijan its proposals on preferential tax and customs regime, 
currency adjustment in special economic zones; 
 
3.5. to prepare and submit to the President of the Republic of 
Azerbaijan the draft simplified rules of documentation of customs 
control, activity of customs points, goods within special economic 
zones, regime of access of vehicles and physical persons; 
 
3.6. to solve other issues arisen from this Decree. 
 
¶4. This Decree comes into force from the day of publication. 
 
Ilham Aliyev, 
President of the Republic of Azerbaijan. 
Baku city, March 6, 2007. 
 
END TEXT 
 
DERSE